Living debt-free may sound nearly impossible, especially with the ongoing pandemic that has resulted in mass layoffs. This has caused many people to be burdened with increasing debt, financial emergencies, and other issues that derailed their personal goals.
However, it’s still possible to work towards financial freedom. When you are financially free, you have enough savings, investments, and cash on hand to afford the lifestyle you want for yourself, and your loved ones.
While it’s easy to fall into a debt pit, there are habits you can start building that can help you avoid digging any deeper. Here are 4 easy steps to create a path toward living a debt-free life.
Create A Budget And Stick To It
To avoid crossing your spending line, having a guide is really important. Calculate your income and expenses then figure out how much you can spend. This way, you’ll be able to make better financial decisions.
Avoid buying anything when you don’t have enough to pay for it. If you don’t have enough for a special want, try saving for it and buy it at a later date.
Look at your budget and assess where you can cut or reallocate funds, but remember to stay within your budget.
Save At Least 15% Of Your Income
Set short and long-term goals and start contributing to those goals by setting aside fifteen percent of your after-tax income.
While it’s mostly recommended to save twenty percent, fifteen percent may allow you to pay off debt faster, giving you the opportunity to increase your contributions to a full twenty once you’re done paying your debt.
Set automatic transfers to help you stay on top of savings. Remember, even if you can’t dedicate a certain percentage to savings it’s important to save what you can. Any contribution is better than no contribution. Consider the Rosabon Earning Plan – REAP, a savings plan that earns you mouthwatering interest on your funds.
Don’t Dip Into Your Savings
A savings account gives you some security and helps you to plan a stress-free financial future.
Things may get a little tight and unexpected costs may come up, so it is important to create two savings accounts (one for emergencies) in order to stay away from your main savings account.
This way, you get to have funds for emergencies and savings for more important life goals.
Try Out the 50/30/20 Rule
The idea is to spend 50% of your income on your needs, 30% on your wants, and put the remaining 20% into debt repayment and your savings.
Remember that these percentages are seen by most as the maximum you should spend. This means that spending less than these percentages can leave you with more money which you can funnel towards some of your other goals.
As with all the other habits, for this to actually work towards realizing your drive towards financial freedom, self-discipline is vital.